It is a very american thing to say. I mean "it is bad, because it is regulated". Why? I suppose that social credit system of China is abused to make life of political opposition harder, but the article discussed is not about it. It shows case of a failed debtor. And for him it doesn't matter if social credit system is regulated or controlled by the market. What does matter for him is what impact this system has to his life. What opportunities to repaid his debt this social system closes for him?
In some ways US credit system seems worse for me. The only way to get into it is to get a credit. But what if I do not like to pay interest rates? If I'm higly conscious and I can put down my impulses to buy things, to consume for the sake of consumption, to live on pennies while building a capital from scratch? It wouldn't work, because of this system. There are no way to demonstrate your credit reliability and trustworthiness to a system except paying interest rates. At the same time in China a person has non-financial ways to build up her social score. There are a bad sides, of course, like brutal punishments to those, who've hit negative scores, and it completely makes China's system unattractive for me, comparing with the US one.
Seems that China's system is less tolerant for a risky behaviour, while US system just put you on rails of debt and gives you no other way. The latter seems less disgusting for me, but I'm glad that I have not to deal with any. And as outsider for both I really see no big decisive difference between them, they seem for me very similar.
Seems like there is a misunderstanding about the US credit system. Paying interest has 0 impact on your credit score. Plenty of ways to get a credit card without credit history (secured credit cards are typically easiest) and as long as you pay it off before the statement due date (typically 28-60 days after the charge) then you will not be charged any interest while building credit.
> Plenty of ways to get a credit card without credit history (secured credit cards are typically easiest) and as long as you pay it off before the statement due date
How it works? What the reason for a bank to give credit without interest? I just do not believe it. System must have a way to get interest. If system says it charges no interest, it means that interest payments are hidden. Either behind transactions fees, or by fixed costs covering maintanance of credit card, or by some other ways.
> How it works? ... Either behind transactions fees, or by fixed costs covering maintanance of credit card, or by some other ways.
You're correct, US credit card companies do still make a profit on those of us who pay off their balance in full every month and therefore pay no interest.[1]
Visa/MC/Discover/Amex all charge the merchants a percentage (~2%) to process a credit card transaction. I have a cashback card with no annual service fee which pays 1.5% cashback.
Let's say I spend $10,000.00 on this card in 1 year. Visa will collect $200.00 in merchant fees, pay me $150.00 in cashback, and gross profit of $50.00 on my account for 1 year.
Some cards charge an annual service fee which adds to the gross profit.
[1] It's possible there are some people who are a net loss to the card issuers due to gaming the rewards systems, but generally the issuer will make money on someone who pays $0 in interest.
If system says it charges no interest, it means that interest payments are hidden. Either behind transactions fees, or by fixed costs covering maintanance of credit card, or by some other ways.
In a sense you are right -- there is a hidden fee, and it's related to the value that credit cards create for merchants. There are other ways to make money on payments, besides interest. The card company charges the merchant a fee -- perhaps 3.5% -- to process the transaction.
If a customers pays 8.00 USD for a toothbrush with cash, the merchant receives 8.00 USD in cash. If the customer pays with a credit card, the merchant receives 7.72 USD directly in their bank account. They lose 0.28 USD on 8.00 USD. Why do they take this deal?
* Reduced risk of theft and loss. Cash is easy to steal -- it can be stolen by employees, by dedicated robbers, and by passers by.
* Increased likelihood of making a sale. People don't want to carry too much cash, so sometimes they run out; and instead of making an impulse purchase, they just don't make the purchase. Credit makes it much easier for them to make that purchase.
In some ways US credit system seems worse for me. The only way to get into it is to get a credit. But what if I do not like to pay interest rates? If I'm higly conscious and I can put down my impulses to buy things, to consume for the sake of consumption, to live on pennies while building a capital from scratch? It wouldn't work, because of this system. There are no way to demonstrate your credit reliability and trustworthiness to a system except paying interest rates. At the same time in China a person has non-financial ways to build up her social score. There are a bad sides, of course, like brutal punishments to those, who've hit negative scores, and it completely makes China's system unattractive for me, comparing with the US one.
Seems that China's system is less tolerant for a risky behaviour, while US system just put you on rails of debt and gives you no other way. The latter seems less disgusting for me, but I'm glad that I have not to deal with any. And as outsider for both I really see no big decisive difference between them, they seem for me very similar.